The importance of soil health and of having land in a more robust and resilient state is not a new message.
It is far more than two decades old, but it has been increasingly stated and emphasised in recent years.
This article indicates that this issue can also impact on businesses further up the supply chain.
Soil health is important because:
It influences soil productivity and yield potential.It provides essential ecosystem services, as are now demanded by society. Ecosystem services is a fancy name for what any soil in good conditions will do naturally. These include:
The ability to store carbon as organic matter.The capacity to allow water percolation to slow its progress to rivers and hence decrease the risk of flooding.The removal or neutralising of nutrients or compounds to help prevent them from causing pollution problems in water bodies.The ability to carry huge populations of microorganisms which contribute to soil functioning.The ability to recycle nutrients to fuel new vegetative growth.There are many other functions provided by a healthy soil, including its ability to resist physical damage.
It provides a home for many different species and it also helps damaged soil to recover. A soil which is not healthy lacks the ability to perform many of these functions.
Soil health and supply chain profitability
With increasing uncertainty being imposed by changing climate, society is pushing for increased sustainability and biodiversity along the food chain.
Here in Ireland, we now see some co-ops supposedly beginning to reward suppliers for product and practices that claim to improve the sustainability of the supply chain.
Against this background, it is of interest to report on some research recently conducted through Cambridge University on the impact of land quality and specifically soil health on the profitability of companies operating along the supply chain.
One must ultimately think that land quality should also be reflected in its value, but such logic is hampered by the varying agricultural supports.
Reduced income from degrading land
This research was carried out in Brazil by the University of Cambridge Institute for Sustainability Leadership (CISL). It looked specifically at the impact of weather stress on production and how this had an impact along the supply chain.
It found that businesses that depended on produce supplied from areas of degrading land could see their market value decline by 13%, while those being supplied from healthy soils could see their valuation increase by 6%.
The extent of the loss or gain was influenced somewhat by the quantities produced, but even more by the market value of the produce.
In years of extreme weather stress, businesses supplied largely from degrading land suffered a 13% decrease in turnover because that land produced less produce.
In contrast, businesses being supplied from healthy soils had a 6% increase in the value of their business. While this increase was influenced by higher yields, it was mainly a result of the higher crop prices that follow extreme weather events.
Businesses that are supplied from healthier soils achieve higher value over time
The study found that businesses that are supplied from healthier soils achieve higher value over time, as they suffer less in times of climate related stresses.
On the other hand, land that is quite degraded brings added profitability challenges to producers and the businesses that depend on it, as these supply chains suffer more in times of stress.
Asset value
The findings indicate that businesses dependant on supplies from degrading land show more variable profitability and so its supply base has the potential to impact on its asset value over time.
Indeed, the research observed that where small food processing companies depended on farms with degrading land, the net impact over time could see their valuation fall by as much as 45%.
The reason for these conclusions hinge on the vulnerability of degrading soils to extreme weather situations and this can have an impact all along the food chain to effectively decrease asset value.
Because extreme weather events cause crop yields to decrease more where land is degrading, such land poses extra financial risks to agricultural value chains and the research suggests that such risks should be integrated into investment decisions.
What this means to businesses
Commenting on the implications of the research, CISL's Dr Nina Seega said: "By detailing precisely how land degradation is financially material, this use case [study] shows that investors are able to measure nature-related financial risks today.
"Others need to learn from this example. By doing so, the existential risk posed by nature loss can begin to be integrated into financial decisions and the value of nature recognised by our economy."
In essence, land degradation amplifies the financial vulnerability of companies, especially small companies, operating in agricultural value chains and this is part of what was being evaluated by CISL regarding nature-related financial risks.
The findings of the study emphasise that land degradation has financial consequences along the supply chain and that businesses need to incorporate factors such as soil health into investment decisions.
It also highlights the need for companies in the agribusiness sector to actively engage with producers to help mitigate nature-related risks.
The report concluded that educating and incentivising farmers to invest in soil health is in the best interest of all in the supply chain.
The importance of soil health and of having land in a more robust and resilient state is not a new message.
It is far more than two decades old, but it has been increasingly stated and emphasised in recent years.
This article indicates that this issue can also impact on businesses further up the supply chain.
Soil health is important because:
It influences soil productivity and yield potential.It provides essential ecosystem services, as are now demanded by society. Ecosystem services is a fancy name for what any soil in good conditions will do naturally. These include:
The ability to store carbon as organic matter.The capacity to allow water percolation to slow its progress to rivers and hence decrease the risk of flooding.The removal or neutralising of nutrients or compounds to help prevent them from causing pollution problems in water bodies.The ability to carry huge populations of microorganisms which contribute to soil functioning.The ability to recycle nutrients to fuel new vegetative growth.There are many other functions provided by a healthy soil, including its ability to resist physical damage.
It provides a home for many different species and it also helps damaged soil to recover. A soil which is not healthy lacks the ability to perform many of these functions.
Soil health and supply chain profitability
With increasing uncertainty being imposed by changing climate, society is pushing for increased sustainability and biodiversity along the food chain.
Here in Ireland, we now see some co-ops supposedly beginning to reward suppliers for product and practices that claim to improve the sustainability of the supply chain.
Against this background, it is of interest to report on some research recently conducted through Cambridge University on the impact of land quality and specifically soil health on the profitability of companies operating along the supply chain.
One must ultimately think that land quality should also be reflected in its value, but such logic is hampered by the varying agricultural supports.
Reduced income from degrading land
This research was carried out in Brazil by the University of Cambridge Institute for Sustainability Leadership (CISL). It looked specifically at the impact of weather stress on production and how this had an impact along the supply chain.
It found that businesses that depended on produce supplied from areas of degrading land could see their market value decline by 13%, while those being supplied from healthy soils could see their valuation increase by 6%.
The extent of the loss or gain was influenced somewhat by the quantities produced, but even more by the market value of the produce.
In years of extreme weather stress, businesses supplied largely from degrading land suffered a 13% decrease in turnover because that land produced less produce.
In contrast, businesses being supplied from healthy soils had a 6% increase in the value of their business. While this increase was influenced by higher yields, it was mainly a result of the higher crop prices that follow extreme weather events.
Businesses that are supplied from healthier soils achieve higher value over time
The study found that businesses that are supplied from healthier soils achieve higher value over time, as they suffer less in times of climate related stresses.
On the other hand, land that is quite degraded brings added profitability challenges to producers and the businesses that depend on it, as these supply chains suffer more in times of stress.
Asset value
The findings indicate that businesses dependant on supplies from degrading land show more variable profitability and so its supply base has the potential to impact on its asset value over time.
Indeed, the research observed that where small food processing companies depended on farms with degrading land, the net impact over time could see their valuation fall by as much as 45%.
The reason for these conclusions hinge on the vulnerability of degrading soils to extreme weather situations and this can have an impact all along the food chain to effectively decrease asset value.
Because extreme weather events cause crop yields to decrease more where land is degrading, such land poses extra financial risks to agricultural value chains and the research suggests that such risks should be integrated into investment decisions.
What this means to businesses
Commenting on the implications of the research, CISL's Dr Nina Seega said: "By detailing precisely how land degradation is financially material, this use case [study] shows that investors are able to measure nature-related financial risks today.
"Others need to learn from this example. By doing so, the existential risk posed by nature loss can begin to be integrated into financial decisions and the value of nature recognised by our economy."
In essence, land degradation amplifies the financial vulnerability of companies, especially small companies, operating in agricultural value chains and this is part of what was being evaluated by CISL regarding nature-related financial risks.
The findings of the study emphasise that land degradation has financial consequences along the supply chain and that businesses need to incorporate factors such as soil health into investment decisions.
It also highlights the need for companies in the agribusiness sector to actively engage with producers to help mitigate nature-related risks.
The report concluded that educating and incentivising farmers to invest in soil health is in the best interest of all in the supply chain.
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